In September, California enacted a law governing the sale of annuities based on a model act drawn up by the NAIC. Eleven other states have done the same, all with the purpose of protecting consumers from buying a product they may not understand or need.
Political fanfare aside, what does this mean for carriers, advisors and the marketing organizations (FMOs/IMOs) that offer annuity products?
The consensus appears to be that increased regulation, while burdensome at times, is a good thingfor no other reason that it can streamline an approval process that varies widely between states and even carriers.
By some accounts, carriers and marketing organizations have gotten the message and put in place their own suitability measures even before the NAIC model was written in July.
Case in point: Allianz Life Insurance Company of North American, also in July, launched a new distribution platform for its fixed index annuity products that is open to only select FMOs. In order to exclusively market its Allianz 360 FIA, FMOs must meet certain requirements, such as a specified premium volume. According to Eric Thomes, senior vice president at Allianz in Minneapolis, the threshold is $75 million in annual Allianz annuity production. To date, 29 FMOs have joined.
That’s not the only requirement, however. Prior to instituting the Allianz Preferred initiative, the company started what it called a “focused FMO” program in which to join an FMO had to agree to place a field suitability officer in its shop.
This latest version takes the suitability angle even further: To join the Preferred platform, FMOs must also hire a field compliance officer and submit all their non-company-specific material distributed in the marketplace for review by Allianz to ensure it has the proper disclosures.
The Ghost of 151A
All this focus on suitability, Thomes says, is an outgrowth of the battle over SEC Rule 151A. Though the rulewhich attempted to make indexed annuities a securities productwas ultimately defeated, its effects still linger within the industry.
“When the SEC was proposing that indexed annuities be securities products, there was a lot of bright light shined on the product and the distribution [model] that sold those products,” Thomes says. “We’ve moved through that and we are now with the NAIC model suitability act.”
For carriers and FMOs, Thomes contends a focus on suitability only makes all annuity salespeople better. “It’s pushing them to raise the quality within their organizations,” he says.
Thomes also notes that with annuities becoming more mainstream, more oversight was bound to follow.